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Coca Cola Company - Financial Analysis Starting 2009

Essay by   •  May 16, 2012  •  Case Study  •  1,355 Words (6 Pages)  •  2,159 Views

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Introduction:

The Coca Cola Company was founded in 1886. Headquartered in Atlanta, GA the company employs more than 100,000 in over 200 countries. Coca Cola operates in the soft drink beverages industry. The company's top nonalcoholic brands include Coke, Diet Coke, Sprite, Fanta, and Minute Maid. The brands are so popular that over 1.7 billion servings are consumed each day.

The board of directors includes current and former executives of Sun Trust Bank, former Chicago mayor Richard Daley, and former Major League Baseball commissioner Peter Ueberroth. The chairman of the board and CEO, Muhtar Kent, started with the company in 1978 as a marketing executive and became CEO in 2008.

Ratios:

The financial ratios used to help anticipate future conditions and determined the strength and weakness of company. (See accompanying Excel sheet.) This section of the paper analyzes using a comparison style, four common ratios; liquidity ratio, asset management ratios, debt management ratios, and market value ratios. First, liquidity ratios measure the ability of a firm to meet short-term obligations and to cover its expanses. Compared with the last three years, a Coca Cola has the lowest current ratio (.8%) and Quick Ratio (.1%) in 2011, which mean a company cannot quickly be converted to cash and its ratio could be satisfied as long as the group of accounting receivable is not expected to slow. Second, asset management ratios is an ability to measure how a company to manage its sales revenue effectively. The best year was 2011. A Coca Cola has achieve its inventory turnover at 5.6% more than the 2010 and 2009, and fixed Assets turnover ratio was increasing by .68 %, which indicated a Coca Cola has a high level of operations as measured by sales. Third, debt management ratios measure the ability to avoid financial distress in the long run, and how much of a company's assets are provided through debt. Coca Cola has a lower ratio, which means Coca Cola depended less on money borrowed from others and has stronger its equity position. Fourth, market value ratios evaluate the economic status of its company. The price-earnings ratio of the Coca Cola increased through the last years at 19%, 13%, and 19%, which means a firm was expecting a higher earnings growth in the future. Finally, the company has a positive EVA, which indicates Coca Cola is generating profits in excess of their cost of capital. For those reasons, the equity makes a good investment in the company and also they have ability to growth in the future.

Free Cash Flow Calculation

Free cash flow (FCF) is derived from net operating profit after taxes, which is a number independent of financing decisions (debt/equity) and unrelated to accounting choices (recognition of income, a/r policies, etc.). Free cash flow also deducts cash necessary for continuing operations, or required new asset investments. Free cash flow is the cash a company uses for required investments, pay debt off or dividends to its shareholders. For Coca Cola Company finding FCF involves getting data from the current operating assets and liabilities from the Coca Cola Balance sheets. In addition, Coca Cola's Income Statements are used to get its EBIT and finding the tax rate for the company.

The table below shows that Coca Cola FCF has been increasing since 2009 when the company had a negative cash flow. As we know, 2009 year was a down year; stock prices were low; people were not paying attention to FCF, most of the companies including Coca Cola invested on operating equipment. There is a drastic change in Net investment, which was 141 million during 2008 to 5877 million during 2009 year. Since 2009 Coca Cola net investment has been decreasing adding to an improved FCF, which is the highest during 2011.

Scaling Factor : 1000000 USD Currency: USD

4 YR FCF Calculations 12/31/11 12/31/10 12/31/09 12/31/08 12/31/07

NOPAT= EBIT ( 1-tax rate) 7,255.95 8,986.90 5,528.90 4,648.15 4,979.65

NOWC= ( Cash+ Accts.Receivable + inventories + other current asset) -

( accts.payable + accruals) or Current asset I current liabilities 1,214.00 3,071.00 3,830.00 -812.00 -1,120.00

Operating Capital= Net pant and equipment + net operating capital (NOWC) 16,153.00 17,798.00 13,391.00 7,514.00 7,373.00

Net invetements in operating capital -1,645.00 4,407.00 5,877.00 141.00

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